Your Band Is A Business

by Mark Alan V.

You're starting this band and all the pieces are falling into place. The bass player has a PA system, the drummer has a big van, the guitar player has a place to rehearse and the singer owns his own microphone. It has all the makings of a great partnership. Everyone has something to contribute, each does their part and at the end of each gig, the money will be split up evenly.

It's a pretty common working arrangement for bands that are starting out and even those who are just playing around the local scene. But what happens when an overly enthusiastic fan spills their malted barley adult beverage on the mixer resulting in some unwanted pyrotechnics? What about gas for the van or when the guitar player's mom insists on sound proofing the basement, I mean, rehearsal space? Oh and heavens forbid the singer would have to replace their SM58, that's like a hundred bucks. Who's going to be on the hook for those expenses? The individuals who own those items? I guarantee that's not going to fly. After all, why should the bass player shoulder all the expense to fix his gear that was damaged when the band was using it? So now you find yourself in a situation where the others are asked to chip in to fix something they don't own. That doesn't always sit well either.

I'll be honest, in my first couple bands, that wasn't something that crossed our minds, probably because we never encountered a big expense like that. We each had gear to contribute, we did our gigs and if there was any money earned, we split it. That was that. Although, in my high school band, we did go into the studio and cut a 6 song EP and we personally split the cost of the studio time and duplication. Then we each ended up with a box of cassette tapes (yes, I'm that old) we could sell on our own and keep the earnings. For four high school kids, we had no clue on how to run a business, but that arrangement just seemed to make sense.

The problem with operating like that is you're not really working together as an organization, but rather as a collection of individuals. Each person is loaning their personal assets, time and talents, to the cause, but then immediately taking out their cut of the earnings, leaving nothing for the band as a whole. That becomes problematic when something goes wrong or you want to take things to the next level. That's when you suddenly find yourselves in a situation where money needs to be injected into the band.

My big ah-ha moment, that moment when it just clicked and I said, ‘of course that's how this works' was when I ran into a friend and former bandmate from college, Scott. I popped into the local music store and he was there selling one of his guitars, which really surprised me, but the reason was really awesome. Scott had spent the previous month on the road with Caroline Spine filling in for their recently departed bass player. They offered him a permanent spot in the band, so he quit his job, was liquidating a bunch of his assets and was getting ready to head back out on the road with them. We decided to grab a few beers and he told me ALL about the not-so-glamorous side of being a touring musician.

One of the really interesting things he mentioned was how the band operated financially. While on the road, 100% of the earnings from their shows, cd sales and merchandise went back into the band's coffers. All expenses, such as cost of merch, gear, gas, meals, room and board (when they weren't sleeping in the van and showering at truck stops) were paid out of the band's funds. The members didn't take a cut and anything left over was going to go towards studio time, promotions, etc. Scott did mention one notable exception and that's when they were getting ready to play the Whisky a Go Go in West Hollywood. It was Scott's first time there and he was so nervous that the other guys approved taking a few bucks out of the funds to buy him a beer to help him relax.

In their situation, they were acting as a cohesive unit, all for one, one for all, where the band's financial stability and goals came first. You can easily equate that to the small business owner who doesn't take a paycheck for the first year and just reinvests all that money into the business. So setting your band up to operate as a business makes perfect sense. But it does require you to take off your artist hat and put on your entrepreneur hat.

First of all, you want the business to be an entity unto itself, wholly owned by one or more of the band members, but it needs to have it's own assets, income and expenses. So when the bass player contributes their PA system to the venture, it becomes property of the business and the value of that PA system is his or her capital investment. Likewise with the van and the singer's microphone. Now the band, as a business, has capital, owns assets and is responsible for costs involved with maintaining and operating those assets. The overall value of the business is the total of the value of the assets and each band members' percentage of ownership in the business is based on how much of the valuation was their contribution.

From this point on, income is earned by the business, expenses are paid by the business. Gear, supplies and other tangibles purchased with business funds are the assets of the business. Expenses paid for out of a band member's pocket can be expensed to the business and the income tax liability is split among the owners based on their percentage of ownership. Once profitability has been reached, depending what the goals are for the band, that money can be reinvested in the band, or the owners can pay themselves by means of taking a draw from the business.

Of course, you have to take into consideration what will happen if a band member leaves, either voluntarily or not. What is the mechanism to buy out their ownership, or under what circumstances might they forfeit ownership? In the event of disbanding the band, the business assets would have to be divided up based on the percentage of ownership, as well as any outstanding debt.

Even if you are just a solo artist, it is in your best interest to set up your music venture as a business. Aside from appearing more professional, doing so will allow you to better manage your accounting, claim business expenses on your taxes as well as profits and losses.

As for Scott and his band, well, they eventually landed a record deal. They had nationwide airplay of several of their singles, appeared in a couple movie soundtracks and toured internationally with top acts, including opening for KISS in Europe. Not too shabby.